Network Effect

Definition

The phenomenon whereby a service becomes more valuable as more people use it, thereby encouraging ever-increasing numbers of adopters.

Information

The network effect is often the result of word-of-mouth testimonials. The network effect can be perpetuated indirectly, as well, through analysis of a network’s size and projected growth.

While the word-of-mouth method is often more influential in the beginning, analysis may play a significant role later in the cycle. In other words, you may adopt a service initially because someone you know uses it; later, you may adopt a service because “everyone” uses it.

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